Can last week’s losers Anglo American plc (-15%), Inmarsat plc (-13%) and Ophir Energy plc (-10%) rebound?

Royston Wild considers whether Anglo American plc (LON: AAL), Inmarsat plc (LON: ISAT) and Ophir Energy plc (LON: OPHR) can bounce back.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I’m looking at the investment prospects of three recent Footsie fallers.

Falling from orbit

Satellite builder Inmarsat (LSE: ISAT) took a heavy pasting from Monday-Friday after downgrading its revenues forecasts for the year.

Inmarsat commented that the “sustained recession in global maritime and energy markets continues” is forcing the business to cut its 2016 sales projections by $50m to $1.175bn-$1.25bn. The company saw total revenues slip 2% between January and March, to $298.6m.

Indeed, problems in the shipping and commodities markets are expected to drive earnings 22% lower in 2016 alone, resulting in a conventionally-high P/E rating of 24.5 times.

Although the mobile satellite services sector provides exciting growth opportunities for Inmarsat, I reckon the troubles washing across its other markets make the business an unattractive selection at present, particularly in view of its hefty share price.

Metals migraine

I have long argued that the recent surge in commodity prices — and with it the share values of many mining and energy producers — is in danger of a colossal retracement.

These advances have come in spite of extremely-poor supply and demand balances persisting across most commodity segments. So fresh signs of economic cooling in the US, allied with lasting fears over the health of China, have pushed stock values heavily to the downside in recent days.

Diversified digger Anglo American (LSE: AAL), for example, saw its share price slump by double-digit percentages last week, the firm toppling from recent eight-month highs just below 800p. And the business has slumped again in Monday business, this time by a chunky 8%, following bearish news surrounding the iron ore sector.

Prices of the steelmaking ingredient — a segment from which Anglo American generates a third of all earnings — have tanked in start-of-week trading after Bloomberg data showed stockpiles at Chinese ports rocketed to their highest since last April, at 92.2m tonnes.

With Anglo American’s other major markets also suffering from chronic oversupply, the City expects earnings to tank 32% in the current year alone. This projection leaves the digger dealing on a vast P/E rating of 23 times.

I believe Anglo American’s elevated multiple is unfathomable given the firm’s huge risk profile and lack of obvious growth drivers, and reckon the ratio leaves plenty of space for a hefty correction.

Driller dives

But Anglo American isn’t the only commodities stock in danger of a mammoth retracement. Indeed, I reckon fossil fuel producer Ophir Energy (LSE: OPHR) could also add to last week’s heavy losses as the oil industry heaves under excess supply.

The company’s massive risk profile went up another notch in late April after an accord with oil services provider Schlumberger went up in smoke. The pair had agreed to develop the Fortuna FNLG project in Equatorial Guinea, in a deal that would have given the US firm a 40% stake in the asset in return for covering half of Ophir’s previous costs.

Questions have now been raised over Ophir’s ability to fund the development of the project, not to mention the economic viability of the asset in the current climate.

The City already expects Ophir to keep punching losses until next year at the earliest. Given the company’s poor revenues outlook and rapidly-diminishing cash pile, I reckon investors should give the business short shrift.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »